ORGANIZATIONAL FORMS AND DESIGN APPUNTI DA METTERE SU SLIDES (tranne

lezione 1 e 2)

Lezione 1

Multinational Corporation (MNC) basic definition

– A Multinational Company is any business that has own activities in two or more countries
→ basic
– (from UNCTAD) one of the most important source of figures, that publishes very important
reports (es. about overseas investments). Definition: vd slide. The peculiar thing of this
definition is that for a Multinational Company is important to have different entities with a
common strategy and same objectives, with policies and rules, so that can operate in a
coherent way. The most simple way to achieve common goals is centralization → global
policies (from the central corporation pov).
– Outward flow → investimento DA (dentro) paese A (fuori) paese (il contrario è inward
flow). The FDI (Foreign direct investments) data reports that from 1980 to 2010 there's been
an increase from nearly 60000 dollars outward flow to nearly 1,5 mln $.
– During the years firms are increasing the investment process abroad.

Why do MNCs exist?

The eclectic Paradigm. Focus on international production.

Why an organization invests capital in a foreign unit to control it? FDIs can be expressed in
different ways, such as acquisition, greenfield, JVS, or for example other types of contract like
licensing, agencies, management contract.

Why is the transfer of intermediate products (technology, management skills) undertaken WITHIN
the same corporation?

The purpose of the paradigm is to offer a framework to identify and evaluate...........

“Eclectic” because it combines different theoretical approaches. (2 bodies)

1) Neoclassical theory: firms of one nationality invest abroad in sectors that require
intermediate (but internationally mobile) products that they are compraatively well suited to
supply, but that need to be combined with non-transferable inputs in which firms in host
country are relatively well endowed.

Three sets of advantages:

– Ownership advantage → Product, technology, management and organizational skills,

capacity surplus, economies of scale, capital, patent, trademarks.
– Location advantage → natural resources, labour cost, government incentives, need to be
near customers.
– Internalization advantage → ensure supplies at right price, of essential inputs, control over
the market, ensure the quality of end products, protection of knowhow and company
image/name .. save on high transaction costs.
– TRANSACTION COST THEORY: there are two ways to coordinate the transaction. 1) The
market, so I don't need to internalize the transaction if I buy the good/service on the market.
Es. I don't need to internalize research and innovation if I buy that service on the market.
 When do I have to go on the market? When costs are very low, when I can easily find a
supplier, so transaction costs are low. (Perfect competition → unreal)
2) When the uncertainty is very high, and for example a company tries to transfer a
technology in a cheap labour cost country, there must be contracts that regulate and protect
both the firm that invests abroad and the workers. In this case, there is a small number of
possible exchange partners and there's a complex organization for firms. There's a concrete
risk of opportunistic behaviors, because when the complexity of information and skills
increases, some information could be hidden by one of the two parts (Host country and
Investor country), so there's regulation.

2) Market Failure theory: without market failure, Ownership and Location advantage would
not be related to Internalization advantage. There would only be transactions on the market.
La gente internalizza perchè il mercato fallisce in qualche modo (es. comportamenti
opportunistici per incertezze più grandi, complessità prodotti aziende, organizzazioni ecc...).

Lezione 2

If you want to know how to internationalize your company and you don't have data, you may have
to interview few international entrepeneurs.

The Johansson & Vahlne model is a qualitative study. They do qualitative research: the purpose is
to explain HOW firms expand internationally. FDI is not a decision taken in a second, but it's the
end of a learning process based on data, first based on a SINGLE foreign market and then
expanding the process on other international markets.

First of all, according to this model, the company EXPORTS goods in a (1) foreign market, then it
distributes its goods or services, then it creates a sale subsidiary and in the end it produces directly
in that foreign country.

The organization starts with a market that is psychically LESS distant. For example, a country with
the same language, or same income level, ecc..

Why usually companies proceed in this way? Because the model underline the key role of
knowledge. Knowledge reduces risks and uncertainty over time. This type of knowledge can be
learnt only through experience, only DOING IT and it cannot be taught. (“Touch it” knowledge).

The mechanism underlying the process

The formalization of this mechanism can be done in this way:

State aspects Change aspects

Market Knowledge ----> Commitment decisions

Market Commitment <---- Current activities

The basic idea is that “commitment decision” is not based on absolute rationality, so it's taken as a
result of a perceived opportunity on the market.

Commitment decisions are related to Market Commitment, they lead decision the Market
Commitment. When you commit resources, then you have the investment in a foreign market.
Another important component is Market Knowledge: they distinguish between “explicit” (can be
taught) and “touch it” (only taught by experience) knowledge and between “general” (refers to for
example demographic composition) and “specific” (i.e. Cultural aspects, lifestyle, specific needs
ecc..) market knowledge.
“touch it” market knowledge allow you to figure out and identify PROBLEMS and
OPPORTUNITIES on the market.

Commitment decisions

They're not based on absolute rationality, but what does this means? They're not part of a strategy
which tries to reach the optimal allocation of resources between different countries (which is the
idea of absolute rationality).

The process surrounding this type of decisions is more simple: there's a look at the foreign market's
demand increases/decreases.

THE EPG MODEL

This model is divided into 3 modules.

There are different styles through which multinational corporations can have a shape.

1) Ethnocentric (home-country oriented)

2) Polycentric (host-country oriented)
3) Geocentric (world- oriented)

Ethnocentric

Multinational corporation based on the culture of the home country. Basically the idea is that there's
not a differentiation in the marketing strategies or production/R&D/etc strategies depending on the
cultures of the different countries the multinational corporation operates in. There's a sort of unique
attitude applied to all the foreign countries.

Characteristics:
– Locus of decision making is the HEADQUARTER. High level of centralization. As a
consequence, we have a huge amount of information flow but only in ONE direction.
– Standards for evalutations and control are the ones developed by the home country, and
they're applied worldwide.
– Each subsidiary is required to be identified with the nationality of the HQ (headquarter)
– Recruiting, staffing, training and development → the basic idea is that everywhere, people
of the home country are expected to cover key positions. The best men covering best
positions are expatriates.

Advantages:
– High level of control (by the managers, coming from the center and controlling subs)
– Simple organization
– Unified culture
– Transfer of knowledge from HQ to SUBS.
Disadvantages:
– Low MORALE, demotivation of best men in the subsidiares (low level of attraction and
retention, because managers are taken from the HQ)
– Ineffective planning because of LACK OF FEEDBACK! Local needs could become
unanswered/unsatisfied.
– Fewer innovations in subsidiares
– Less flexible response to local changes.

Polycentric

– Locus of decision making is the opposite → SUBS not headquarter. Foreign markets are
different, so there's not the possibility to apply a unique method to all countries.
– It follows local standards, not the home country's one.
– Information flows: From/Low to HQ and between subsidiares.
– Identification → Host country.
– Staffing, recruiting, development and training: there's local people in key position in
LOCAL markets, but there isn't local people in key position in the HQ. (so local managers
and main managers are detatched [distaccati])
– The control is on FINAL RESULTS, so the subs are supposed to comply the HQ's
directives.

Advantages
– intensive exploitation of local markets
– better sales (local management is often better informed)
– more local initiative for new products → this helps the innovation process
– more host government support
– good local managers with high morale
Disadvantages
– waste due to duplication (products for local use but which cannot be universal: reinventing
the wheel)
– inefficient use of home country experience
– excessive regard for local growth at the expense of global growth.

Geocentric

– Locus of decision making: BOTH HQ & SUBS (collaborative approach)

– Standards: (Global) firm STANDARDS. The basic idea is to create subs that are able to
contribute the multinational corporation seen as A NETWORK, in term of competences and
skills.
– Information flows are in ALL DIRECTIONS.
– Identification: international firm (with LOCAL INTERESTS).
– Recruiting, staffing, development: develop best men everywhere in the world for key
positions everywhere in the world (so there's not detachment btw local and hq managers).
For example, when you want to implement a new technology abroad, you teach your idea and your
standards, and once you have a subsidiary, this one will match local needs with local competences
and interests.
Advantages

– better quality of products and service

– worldwide utilization of best resources
– greater incentives for HR
– greater sense of commitment to worldwide objectives
Disadvantages

– expensive
– human costs of international mobility, stress associated with a geocentric CAREER. This
refers to life quality.

UNILEVER EXAMPLE VD SLIDE.

STARBUCKS EXAMPLE VD SLIDE.

Starbucks is ethnocentric because there's only ONE IDEA (starbucks coffee idea) that has been
exported and taught to other subsidiaries. Why? Instead of having polycentric approach (usually
beverage factories use this kind of method), they use a ethnocentric one to protect the idea and the
firm's image.

COMPITO: CERCA SU GUGOL AZIENDE (eS. APPLE, CHANEL, AUDI (LAMBORGHENEE

AND GIUGIARO CERCARE DI CAPIRE IL COLLECTIVE AGREEMENT BETWEEN AUDI
(HQ) E LE SUE SUBSIDIARIES) E CAPISCI CHE MODELLO UTILIZZANO.

ESEMPI:

Apple

5 main segments: America, Europe, Japan, Retail others → Australia and Asia.
It does not customize products, it offers.

HQ in California, Human Resources policies are ethnocentric and centralized.

Employees benefit financial function.

Sales customized to comply with different legal standards → they adapt the standards → geocentric
approach.

Why geocentric attitude? Because we have worldwide standards but with the possibility to
comply with LOCAL needs (in this case, legal needs of governments of host countries).

A firm can adopt a Geocentric approach even if Ethnocentric attitude is dominant.

Lezione 3

BARTLETT & GHOSHAL'S TYPOLOGY (part 1)

Three main points:

1) Bartlett and Ghoshal add a fourth organizational type (in EPG there were only 3 types), that
is the Transnational company.
2) In addition to that, they analyse more deeply the specific organizational features.
3) They analyse why Multinational companies adopt different models, and why/how can
change the adopted model overtime.

Why MNC adopt different organizational models? Which are these factors?

Premessa: this is the scheme to follow, from a general to a specific decision.

ENVIRONMENT → KEY strategic requirement → STRATEGY –> strategic capability →

organizational Type.

One factor is the key strategic requirement: three different types, global efficiency, the ability to
develop knowledge and exploit resources worldwide, local responsiveness.

The KEY STRATEGIC REQUIREMENT is a result of a number of forces in the outside

enviroment (general and specific enviroment).

Which kind of causes could influence the efficiency? Incrementally changing technologies, falling
transportation and communication costs, low tariffs, increasing homogenization of national markets,
huge scale economies in manifacturing, marketing and R&D etc...

→ When there's Global efficiency , we have a GLOBAL STRATEGY (vd slides). Example:
Apple, seems to be based on this global solution, except from the sales activity.

GLOBAL ORGANIZATION MODEL → vd slides. Global efficiency (reminds of

Ethnocentrical).

MULTINATIONAL APPROACH → vd slides. Local responsiveness (reminds of Polycentric).

INTERNATIONAL APPROACH → vd slides. Learning and exploiting resources worldwide

(reminds of Geocentric).

TRANSNATIONAL MODEL: why we have a 4th organizational type? They make the hypothesis
that the envoriment changes, the key strategic requirements change and so there's a need of a model
that fits with those changes.

With an increasing number of industries, the enviroment changes in a dinamic way that firms are
required to have GREAT GLOBAL EFFICIENCY, GREAT LOCAL RESPONSIVENESS and
GREAT LEARNING AND EXPLOITING RESOURCES CAPABILITY, so they have a
multidimensional organization.

Why? Because consumers react rapidly with their needs.

(Lezione 4) Telecommunications switching industry

[Siamo all'interno dell'international approach]. We have the need to achieve economies of scale
and the need to differentiate the goods. Both needs are related to the need to develop knowledge and
to transfer abroad such knowledge and so the exploitation of this knowledge worldwide.

Such knowledge could be transfered to other countries (less-advanced ones), so companies start to
expand their operations abroad first by exporting, then by setting up local subsidiaries to comply
with the requests of host governments in order to support the local economic development.

THE TRANSNATIONAL SOLUTION

Overcoming simplifying assumption we have some realistic assumptions in this model.

This is the main criticism that B and GHOSHAL put forward in respect of the previous model.

Contributor: local subsidiary in a non important enviroment but with high level of local capabilities
for competences and resources.

ESEMPIO DELLA NIKE (NON SU SLIDES) (CHIEDI ALLA SIG. RA BORCIA)

Lezione 4

Socialization: the extent to which individual members and every organization are identified with the
overall goal and values of the worldwide company.

Example of Google Core Values (incompleto):

How can we try to develop the Googleness? People from the HQ are transfered to the sub units.
Support, encourage informal relationships between people also OUTSIDE work, in private life.
When you spend your time taking part in some initiatives (team-building initiatives), you're
facilitated to be part of a group.

Socialization is the behaviour used in “Strategic Leader” situation an “Black Hole”.

Why in both cases and not in the other we use socialization and not formalization or centralization?
The strategic leader needs to be autonomous.

We need the HQ to GIVE autonomy to the Strategic Leader → the base of innovation process,
creativity is based on autonomy. At the same time there's the need to control such decision, in a not
intrusive way, and the best mean to control this decision is to control that they're able to decide
according to shared values.

In the case of the black hole, they've not the capability to take part in the innovation process, but
they're not required to be autonomous. The information needs to be appropriate, HQ is not able to
see which kink of information. The Black Hole has some space to take initiative, but only about the
selection of the information. In this case there's socialization. Why? Because if you know the
general principles of your company, such values can support you in understanding the most relevant
information in each single case. The Black Hole should monitor information in order to capture
opportunities.
Centralization: coordination mechanism through which decisions concerning each subunit are not
made by the local subsidiary but from HQ. Normally the decisions concerning the money to fund a
specific project (is the HQ that decides the allocation of financial resources).

Formalization: Local subsidiaries are coordinated by standard procedures. It's not a decision made
at the CENTER, in some sense decisions are DELEGATED, but local subsidiaries and managers
there should take decisions on the base of a procedure coming from the center.

Question: which is the best coordination mechanism to coordinate the implementer?

The basic aim of the implementer is to support the company as a whole, and the most used
mechanism is formalization because the enviroment is quite stable, it's not important and it's
possible to predict before end the trends of the market, also because the IMPLEMENTER depends
on the CENTER, for not ONLY ORDERS or INSTRUCTIONS but also for the goods to be
assembled locally or distributed in the local markets.

Question: which is the best coordination mechanism to coordinate the Contributor?

The other idea is that normally the Contributor is a source of a local resource. In the subunits we
have competences that could join HQ in order to develop new strategies, as in the case of
ERIKSSON (vedi esempio), where the local subsidiary was full of competences and the HQ
decided to attach such strong group to each central research and development source to develop
products to comply with GLOBAL STANDARDS (not only local needs). Such decision is taken by
Centralization.

THE MAIN CHARACTERISTIC:

THE TRANSATIONAL ORGANIZATION: is able to differentiate roles and has different

coordination mechanism (depending on different roles). Each mechanism should be selected to
match with different roles.

IN EPG: only 1 coordination mechanism.

INTERDEPENDENCE RELATIONS

According to B and GHOSHAL (THESE ARE HYPOTHESIS!! We are looking to Hypothesis that
need to be checked through empirical tests).

The relationship between different units is based on interdependence. In the global model, we have
subsidiaries depending only from HQ. In the MULTINATIONAL MODEL, we have local
subsidiaries which are completely independent.

Here the idea is that different parts of the whole organization are interdependent. They depend on
one another and viceversa.

The basic idea is to increase the mutual cooperation, to put forward new ideas which are able to
meet market needs.

One of the main problem involved in R&D is that the “new ideas” are not immediately used in the
market. There's the need to increase the cross-fertilization from PRODUCT DIVISION AND R&D
group, to increase their cooperation.
The mechanism used by works as follow:

There's a budget ($) to finance R&D. The HQ decides a given amount.

A PART of this amount is directly allocated to R&D Group. Research centers are located at HQ, and
so they can use this part of money to develop new technologies, that they think will be a value for
the corporation, according to their values (To be creative, to use idea for the market etc..).

Another part, is allocated to PRODUCTS DIVISION. In this situation they have some money to
finance not all research projects, but only the research projects that they BELIEVE ARE ABLE TO
MEET MARKET NEEDS.

In the first case we have a sort of “Market competition” btw CENTRAL R&D and product division,
and there's negotiation with PRODUCT DIVISION. The idea is to negotiate and put together
different values, and the most important implication could be: a radical new product (different from
the idea of R&D and also different from PRODUCT DIVISION's idea, or another important
implication is socialization.

P&G Example
Eurobrand Team 1 Eurobrand Team 2

General General manager

Manager from SUB B
L1 coming
from SUB A ADV From sub
Adv Manager
manager Product Manager
from SUB from SUB B Product A
B Manager

Each team is responsible to develop a new strategy for the market (different product lines).

There's interdependence → they exchange their colleagues and support in EUROBRAND TEAM 1,
depend on the support on EUROBRAND TEAM 2.

(ADV MANAGER AND PRODUCT MANAGER OF EUROBRAND 1 comes from THE SAME
SUBSIDIARY OF GENERAL MANAGER OF THE EUROBRAND 2, and VICEVERSA. They
have to support each other, a cross interdependence between different subsidiaries). Their exchange
is based on mutual dependance → to produce knowledge jointly.

ALL THOSE HYPOTHESIS ARE BASED ON QUALITATIVE RESEARCH.

THERE ARE 9 COMPANIES TAKEN IN CONSIDERATION.

AFTER BARTLETT AND GHOSHAL, there are other studies that try to test empirically such
hypothesis on the base of a QUANTITATIVE RESEARCH, that is carried out on a large number of
cases, in order to test if real companies fit with the model (or more than one model) put forward by
Bartlett and Ghoshal.